3 Wealth Tips for a $1 Million Portfolio
Every investor dreams of building a $1 million nest egg for retirement, but some simply dismiss the idea that they could ever save that much, thinking it’s impossible. That’s unfortunate, because for most Americans, it simply isn’t.
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One of the most important components of building a seven-figure portfolio is something every investor starts out with: time. The other, which may take a bit of expert advice, is investment returns. But given enough time, compound interest can overcome even moderate investment returns and build a $1 million portfolio.
Use the Power of Compound Interest
The power of time in the market is quite amazing when seen in black and white. But to snag the biggest gains that compound interest can offer, investors may have to wait decades, something that can be hard to do — especially for those new to investing.
But it’s worth looking at to realize how relatively straightforward amassing a $1 million portfolio can be, if you earn decent market returns and start as early as possible.
Imagine a 20-year old investor who wants to retire at age 65, which is actually two years before the Social Security Administration will pay you your full benefits. Earning a relatively modest 6% average annual return, this investor will only have to sock away about $363 per month to reach a $1 million portfolio. If he or she can instead earn the 10% that the stock market has returned annually over the long run, the required monthly saving amount would drop to a minuscule $96.
But even if an investor waits until age 30, retiring with $1 million at age 65 is still very reachable. At an average annual return rate of 6%, it would require savings of $702 per month — but if an investor can earn 10% annually, that amount drops to a paltry $264.
These examples show that investing for decades can pay huge returns in terms of compound interest. But there’s also no denying that the higher an investor’s return, the easier it will be to reach a $1 million portfolio.
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Improve Investment Returns
So, what are the best ways to improve investment returns? If you believe one of the most successful investors in the world, Berkshire Hathaway CEO Warren Buffett, simply stick your money in a low-cost index fund.
As the famed billionaire told CNBC in 2017, his best advice for the average investor is to “consistently buy an S&P 500 low-cost index fund. I think it’s the thing that makes the most sense practically all of the time.”
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